Global equities recorded their first back-to-back monthly gain in over a year, and investment-grade bonds posted their biggest monthly gain since 2008, buoyed by the possibility that the Federal Reserve may slow the pace of its interest rate increases. Comments from Fed Chair Jerome Powell, signalling smaller interest rate hikes going forward was a major catalyst behind November’s market performance. At the same time Powell highlighted the risk of relaxing monetary policy too soon and reiterated that the peak interest rate for this tightening cycle is likely to be “somewhat higher” than previously estimated.
Friday’s jobs report reaffirmed this cautious approach, with the U.S. adding more jobs than forecast and wages surged by the most in nearly a year, pointing to enduring inflation pressures. Nonfarm payrolls increased by 263,000 in November compared to estimates calling for a 200,000 increase in payrolls. The unemployment rate held at 3.7% as participation eased. Average hourly earnings rose twice as much as forecast after an upward revision to the prior month.
Other economic data releases were mixed, with the U.S. reporting stronger than expected GDP growth for the 3rd quarter. GDP rose by 2.9% compared to market expectations for a 2.6% increase, following the 2nd quarter’s -0.6% decline. ISM Manufacturing data came in below estimates (49.0 vs. 49.7 est.), with the Chicago Purchasing Manager’s Index (PMI) unexpectedly falling to a level of 36.20 in November, compared to a level of 45.20 in the previous month.
Cyber Monday spending rose by 5.8% year-on-year to a record $11.3 billion, Adobe said. U.S. stores were saddled with a glut of unsold merchandise, forcing them to offer sharply reduced prices; electronics had average discounts of about 20% and toys 22%.
Civil unrest in China, caused by a fire which killed 10 people due to the country’s stringent lockdown measures, has forced authorities to reassess their zero-tolerance approach. China’s National Health Commission announced that it will boost vaccination rates among the elderly, a move seen as crucial for the economy to fully reopen. Days later, China’s most senior official in charge of the coronavirus response, said that efforts to combat the virus were moving to a “new phase” as the omicron variant weakens and more people are vaccinated. Beijing also plans to start allowing low-risk infected individuals to isolate from home rather than in government quarantine sites.
The economic effects of lockdown measures continue to impact China’s economy, with November manufacturing PMI falling to 48.0, slipping deeper into contractionary territory. The services gauge was also worse than estimated at 46.7.
Inflation in the eurozone slowed in November for the first time in 17 months, coming in at 10% compared to the market’s estimate of 10.4%, also lower than the previous month’s 10.6% reading. Inflation decelerated in 14 of the 19 eurozone member states.
European manufacturing PMI registered a rise to a level of 47.10 in November, less than market expectations for an increase to 47.30. Unemployment unexpectedly declined to 6.5% in October, compared to 6.6% recorded in the previous month.
In the UK, business confidence dropped in both the CBI’s third-quarter survey and in Lloyd’s November survey, reflecting a darkening economic outlook. Research conducted by the London School of Economics also showed that Brexit has added £210 to food bills for the average UK household, with low-income families hardest hit.
The Dow Jones (+0.24%), S&P 500 (+1.13%) and Nasdaq (+2.09%) all ended the week higher. Similarly, the Euro Stoxx 50 (+0.39%) and FTSE 100 (+0.93%) were positive. In Asia, the Hang Seng (+6.44%) and Shanghai Composite Index (+1.76%) ended the week higher, whilst Japan’s Nikkei 225 Index (-1.79%) lost ground.
Brent crude oil rallied after data showed that U.S. government’s stockpiles fell by 12.6 million barrels last week, the most since 2019. OPEC+ meets today. At the same time, the biggest sanction effort against Russian oil to date is about to take effect. On Friday afternoon, European Union officials clinched a deal to cap the price of Russian crude at $60 per barrel. Anyone wanting to access key services that the EU provides will have to pay that price or less.
Market Moves of the Week:
South Africa’s political future was sent into turmoil this week, after an independent advisory panel established by SA’s parliament found that there were grounds for lawmakers to investigate the President over funds stolen from his farm, a finding which could lead to President Ramaphosa’s impeachment.
It was widely speculated that President Ramaphosa was going to announce his resignation on Thursday evening, following the report’s findings. It is however now believed that the President has briefed his legal team to begin a process to take the Section 89 panel report on review, making an about turn, opting to challenge the report legally and fight back politically.
South Africa’s unemployment rate declined to 32.9% in the third quarter, compared to 33.9% in the previous quarter. At the same time, vehicle sales increased by 18% (year-on-year), underpinned by a recovery in business and leisure travel.
Despite a turbulent political week, the JSE All-Share Index (+1.60%) posted strong gains, driven higher by rand hedge and resource shares. For the week, the industrial (+4.86%) and resource (+3.61%) sectors were strong, while SA Inc. shares including the financial (-5.94%) and listed property (-2.87%) sectors sold off. By Friday close, the rand was trading at R17.55 to the U.S. Dollar, depreciating by 2.80% for the week.
Chart of the Week:
U.S. employers added more jobs than forecast and wages surged by the most in nearly a year, pointing to enduring inflation pressures that boost chances of higher interest rates from the Federal Reserve. Nonfarm payrolls increased 263,000 in November compared to estimates calling for a 200,000 advance in payrolls. Source: Bloomberg, Bureau of Labor Statistics.